NFRA to get powers to draft regulations

To give functional and financial autonomy to NFRA (National Financial Reporting Authority), a Bill - the Corporate Laws (Amendment) Bill, 2025 - is to be tabled in the winter session of Parliament. The main areas of interest for NFRA will be:

Functional Autonomy: 
Currently, the Central Govt makes rules on functioning of NFRA. The Bill will enable it to draft its own regulations. Regulators do not make laws but they are certainly supposed to frame the rules under the laws for the sector they seek to regulate. The lack of rule making powers for NFRA was a constraint which is now sought to be corrected. 

Financial Autonomy:
NFRA is currently funded entirely by the Central Government by the Ministry of Corporate Affairs. The Bill provides for creation of a separate, dedicated fund for the Regulator. Regulators, to operate effectively, need to have a dedicated source of finance, else they will not be able to operate independently.  Offering of financial autonomy gives the NFRA the space to carve out its independence.  

More penal powers: 
The Bill is also expected to give it more powers to take penal action against auditors and audit firms for non-compliance.

Our views: 
As noted above, both functional and financial independence of the Regulator from the Government will improve the outcome for which NFRA has been set up. Independence of rule making and the access to finance without having to approach the Ministry of Corporate Affairs are both salutary steps. 

Granting it more power for penal actions is something we shall have to read the details. Several regulators have become like courts with the powers they wield and this is something which has to be guarded against.  However granting enhanced penal powers gains significance when one considers an issue that crept up in March this year. NFRA had appealed against a High Court order that had criticized the Regulator's lack of separate divisions for handling Audit Quality Reviews and disciplinary actions. Even as the Supreme Court allowed it to proceed with disciplinary actions against CAs and Audit firms, NFRA was however forbidden to issue final disciplinary orders.  

Link: https://www.financialexpress.com/business/news/nfra-to-get-powers-to-draft-regulations/4059636/

   https://economictimes.indiatimes.com/industry/services/consultancy-/-audit/audit-watchdog-gets-sc-nod-to-tighten-grip-on-chartered-accountants-and-companies/articleshow/119416824.cms?from=mdr